The doomer contingent at the Oil Drum seems to be all over it. I recall that you have said that the Saudis have shown the quite sensible tendency to cut production when inventories elsewhere are high. Do you think that it is the same this time around, or has something very bad happened to Saudi oil production?

Thanks for the sober analysis of energy issues – sometimes when I read the Oil Drum, I can’t help but feel depressed, and your blog adds some balance!

The doomer contingent at the Oil Drum seems to be all over it. I recall that you have said that the Saudis have shown the quite sensible tendency to cut production when inventories elsewhere are high. Do you think that it is the same this time around, or has something very bad happened to Saudi oil production?

Thanks for the sober analysis of energy issues – sometimes when I read the Oil Drum, I can’t help but feel depressed, and your blog adds some balance!

John

Hi John,

The Oil Drum has a private user group of staff members, and they had some comments on this that are relevant. Unlike 2005 — when I argued that Saudi cuts were also based on high inventories — this time many seem to agree that this is likely a factor. One person brought up that it doesn’t seem that any of the Saudis customers have been put on allocation, leading them to believe there is something to the claims of low demand.

In general, the Saudis have been pretty reliable. As someone else on the mailing list said, if Matt Simmons was alive he would be on TV right now saying that the Saudis don’t have any extra oil to sell and that this is proof they are in decline. But this is very consistent with what they did in 2005. Even as prices climbed, inventories were very high and they weren’t going to over supply the market just to bring prices down.

I do think they are near the limits of their production, though, and speculation that they will grow production to 12 or 15 million bpd is unfounded. Anyone basing growth plans on those projections is engaging in some very risky planning.